Companies included in the NYSE are competing in different industries such as Ford Motor under the major auto manufacturers (Yahoo, 2016) while General Electric is operating in the diversified machinery industry (Yahoo, 2016a). However, these companies are operating on a global scale with General Electric’s customers located in 180 countries (General, 2016, p.20) while Ford separates its customers based on geographic regions such as North America, South America, Europe, Middle East & Africa, and Asia Pacific (Ford, 2016, p.8). This means that they are primarily subjected to local as well as international competitors within their operating locations.
Ford
The main brands offered by the company are Ford, Ford-Lincoln, and Lincoln but the highest number of automotive dealers is the Ford brand (Ford, 2016, p.8) at around 89.8% of the global total. The automotive market is affected by the general economic conditions, geopolitical events, and other factors resulting in an uncertain market (Ford, 2016, p.8). The effect of the multiple competitive factors within each geographic location resulted to varying market shares in 2015 (Ford, 2016, p.11). The highest estimated market share is at 14.8% in Argentina with the lowest at 2.1% in India (Ford, 2016, p.11). However, in terms of volume the highest number is at North America with 3.073 million at only a 14% market share while Russia only sold around 38,000 with a 2.4% market share (Ford, 2016, p.11).
The result of which is that the number of cars and trucks sold vary periodically with the United States having the highest volume sales in 2015 at 2.67m and the lowest at 2.45m in 2014 (Ford, 2016, p.11). In the case of Russia, the lowest is in 2015 at 38,000 and its highest at 105,000 in 2013 (Ford, 2016, p.11). This implies that the marketing strategy of each geographical location may result to market share or sales volume success or failure. The main problem seen is that governmental standards and regulations are regularly modified with regards to vehicle emissions, fuel economy and greenhouse gas standards, and vehicle safety (Ford, 2016, p.16). This is primarily seen in the stricter fuel efficiency regulations in many Asia Pacific countries resulting to under-representations in high growth countries (Lowry, 2014). This is despite the fact that Ford is considered to be the sixth most popular global brand and second in the United States (Lowry, 2014).
The consolidated balance sheet revealed that Ford’s liabilities had increased due to a higher financial services debt value (Ford, 2016, p.108). This was concurred by note 13 where the long-term liabilities are higher for both the automotive and financial sector than the short-term liabilities (Ford, 2016, p.146). The credit agreement revealed that Ford is required to have at least two investment grade ratings to retain its senior unsecured long-term debt, the failure of which can result to certain subsidiary guarantees (Ford, 2016, p.73).
General Electric
GE is considered to be a diverse operation with its many businesses and markets, which includes power, renewable energy, oil and gas, energy management, aviation, healthcare, transportation, appliances and lighting, and capital (General, 2016, p.20). However, GE plans to shift its operating portfolio primarily to complementary operations by selling a significant portion of GE Capital while selling the Appliances segment to Haier (General, 2016, p.14). The purpose of the Appliances segment disposal is to unlock significant capital (General, 2016, p.15) due to aggressive competition and constantly changing technology in its markets (General, 2016, p.21).
GE management plans to use the unlocked capital to maximize investor returns through buybacks, dividend retention, and invest in areas of potential organic growth (General, 2016, p.15). Investment in potential organic growth segments is believed to improve complementary operations as seen in the lowered corporate costs while increasing the operating profit margins (General, 2016, p.15). The effect of which is a higher industrial return and a lower capital requirement along with a lower product cost and a leaner cost structure (General, 2016, p.16). The goal of the GE strategy is to focus on core risk areas such as cybersecurity, product quality, liquidity, and global compliance (General, 2016, p.17).
The financial performance of GE was primarily due to the stronger U.S. dollar since 45% of its market is in the U.S. (General, 2016, p.29). The increased focus on liquidity is due to the required continued access to sufficient funding for company operations as well as growth objectives (General, 2016, p.79). However, GE plans to limit its dependence in unsecured term debts and commercial papers while improving its liability management by buying back debt and decreasing interest costs (General, 2016, p.79). GE is perceived to retain a long-term credit rating of A-/A3 and a short-term credit rating of A-1/P-1 (General, 2016, p.82).
Investment Recommendation
Figure 1. Ford investment analyst recommendation
The continued focus of Ford and GE on improving operating costs resulted in a strong buy to a hold analyst recommendation. Ford was primarily a buy and hold recommendation (Yahoo, 2016) while GE ranges from a strong buy to a hold recommendation (Yahoo, 2016a).
Figure 2. GE investment analyst recommendation
References
Ford Motor Company. (2016). 2015 annual report. Ford Motor Company. Retrieved from http://corporate.ford.com/investors/reports-and-filings/annual-reports.html#/undefined
General Electric. (2016). 2015 form 10-K. General Electric. Retrieved from http://www.ge.com/ar2015/assets/pdf/GE_2015_Form_10K.pdf
Lowry, W. (2014). A must-know investor’s guide to Ford Motor Company. Market Realist. Retrieved from http://marketrealist.com/2014/05/must-know-investors-guide-ford-motor-company/
Yahoo Finance. (2016). Ford Motor Co. (F). Yahoo Finance. Retrieved from https://ca.finance.yahoo.com/q/pr?s=F
Yahoo Finance. (2016a). General Electric Company (GE). Yahoo Finance. Retrieved from https://ca.finance.yahoo.com/q?s=GE&ql=0
